environment of financial services in Switzerland David Violi Head - PowerPoint PPT Presentation

A practical guide for independent weath managers and trustees in the coming new environment of financial services in Switzerland David Violi Head Regulatory & Compliance Services Western Switzerland, BDO Attorney at law March 2016

Plan 1. Background and overview of the Financial Services Act (FinSA) and Financial Institutions Act (FinIA) 2. Trustees and Portfolio Managers under the new FinIA 3. New supervision system and costs 4. Rules of conduct for wealth management under the new FinSA 5. Conclusion Financial Services Page 2

1. Background and overview Origin and aims International regulations Madoff case Lehman collapse Financial crisis and access to EU markets Investor losses International developments Interdisciplinary regulation of financial products and financial services Financial Services Page 3

1. Background and overview Origin and aims “Aside from creating uniform competitive conditions and strengthening the competitiveness of the financial centre, the FinSA serves primarily to improve client protection” Word count in the Federal Council’s dispatched on to the drafts : 5 x «competitiveness» 24 x «client protection» Financial Services Page 4

1. Background and overview March 2010 FINMA Distribution Report February 2012 FINMA Position Paper on Distribution Rules March 2012 Federal Council instructs Federal Department of Finance to develop a consultation draft February 2013 Publication of a hearing report on the key thrusts of potential regulation March 2013 Comments by interested parties (over 50 submissions) June 2014 Presentation of consultation drafts of FinSA and FinIA and start of consultation procedure October 2014 Closing of consultation procedure 4 November 2015 Presentation of revised drafts and Federal Council’s dispatch February 2016 The Parliament decided to treat the drafts but also required the Federal Department of Finance to provide significant overhaul proposals. 2017 / 2018 Entry into force of FinAS and FinIA is expected in 2017 the soonest but most probably in 2018. Financial Services Page 5

1. Background and overview Architecture of Swiss financial market regulations Infrastructure of financial Supervision markets (organisation & competencies) (rules for market participants) Relation Authority financial  institutions Guarantee of a functionning market  FINMASA, NBA (stability of the system) SESTA, FMIA Financial Services Institutions (product & distribution) (authorised forms & requirements) Relation Financial institutes client   Conditions of authorization FinIA, BA, SESTA, LSA, LLG FinSA, SESTA, AMLA, CISA Source: Translation from FDF presentation 2016 Financial Services Page 6

2. Trustees and Portfolio Managers under FinIA Scope of application Art. 2 FinIA Financial institutions (…) are as follows, irrespective of their legal form : a) Portfolio managers b) Trustees (…)  Trustees are newly considered as financial institutions (they were not mentioned in the previous consultation drafts) Financial Services Page 7

2. Trustees and Portfolio Managers under FinIA Definitions – Portfolio manager Article 16 para 1. FinIA A portfolio manager is a person... … mandated to manage assets… … on a commercial basis… … in the name of and on behalf of clients or who may dispose of clients' assets in any other manner (art. 16 para 1. FinIA)  Investment advisers providing only investment advice are not concerned by FinIA (they are however subject to FinSA’s requirements) Financial Services Page 8

2. Trustees and Portfolio Managers under FinIA Definitions - Trustee Article 16 para 2. FinIA A trustee is a person who… … on a commercial basis… … manages or disposes of a separate fund… … for the benefit of a beneficiary or for a specified purpose… … based on a restricted grant given namely in the instrument creating a trust within the meaning of the Hague Convention of 1 July 19859 on the Law Applicable to Trusts and on Their Recognition.  Definition based on to the Hague Convention (art. 2, par. 2, lit c) to avoid undue extension of scope, e.g. to persons who create and manage companies on a fiduciary basis. Financial Services Page 9

2. Trustees and Portfolio Managers under FinIA Tasks Article 17 FinIA The portfolio manager manages individual portfolios. The trustee manages the separate fund, ensures its value is maintained and employs it in a restricted manner. Portfolio managers and trustees may also provide the following services in particular: a. investment advice; b. portfolio analysis; c. offering of financial instruments. Financial Services Page 10

2. Trustees and Portfolio Managers under FinIA Particularities of a Trustee Article 17 FinIA para. 2 The trustee manages the separate fund, ensures its value is maintained and employs it in a restricted manner.  The Trustee must comply with • The same FinIA requirements applicable to portfolio managers • The provision of the Trust (Trust deed, etc.) • The foreign law applicable to the trust  Impact on the guarantee of irreproachable business conducts, organization and due diligence duties of the Trustees Financial Services Page 11

2. Trustees and Portfolio Managers under FinIA Requirements  Duty to obtain authorization from the competent supervisory authority (Art. 4 FinIA)  Transitional provisions (Art. 70 FinIA) As a financial institution newly subject to an authorization, Trustees and Portfolio managers shall upon entry into force of FinIA Report to the supervisory authority within 6 months • Satisfy with the requirements of FinIA and submit an authorization within 2 • years  Grandfathering clause: Portfolio managers can be exempted from prudential supervision if they have at least 15 years of activity, and • • confine themselves to serving existing clients Financial Services Page 12

2. Trustees and Portfolio Managers under FinIA Requirements  Organizational requirements (Art. 8 FinIA) Appropriate corporate form and internal organization • Appropriate internal control system (ICS) : Identify, measure, control and • monitor its risks, including legal and reputational risks Minimal organization requirements to be set by the Federal Council •  Organization form as sole proprietorship, commercial enterprise or cooperative (Art. 17 FinIA)  Obligation to be listed in the commercial register (Art. 17 FinIA)  In particular for Trustees : organizational measures to prevent that the assets of the trust get mixed with the assets of the Trustee Financial Services Page 13

2. Trustees and Portfolio Managers under FinIA Requirements  Guarantee of irreproachable business conduct (Art. 10 FinIA) Good reputation • Expertise in the specific field of activity •  Concerned persons • The financial institution itself • Persons responsible for the administration and management • Qualified participants (10% of share capital/votes or significant influence)  In particular for Trustees: Trustee must have sufficient expertise (e.g. requirements of the law • applicable to the trust) Trustee’s activity is recognized as a specialized activity (e.g. a Bank • acting as Trustee would have to set up a separate legal structure with special qualified personal) Financial Services Page 14

2. Trustees and Portfolio Managers under FinIA Requirements  Respect at all times of authorization conditions (Art.°6 FinIA)  Notification /prior to the authorization in case of changes of relevant facts (Art.°7 FinIA)  Effective place of management in Switzerland (Art.°9 FinIA)  The terms “portfolio manager” and “trustee” may only be used only with the corresponding authorization (Art.°12 Fin IA) International treaties exemptions are reserved • Protected by criminal provisions against confusion and deception • Financial Services Page 15

2. Trustees and Portfolio Managers under FinIA Requirements  Adequate collateral or professional liability insurance (amount to be set by Federal Council’s ordinance)  Duty to provide information and to report in case of delegation of significant functions (Art. 60 FinIA)  Respect of professional confidentiality (Art. 65 FinIA) Willfull violation : custodial sentence up to 3 years or monetary penalty • Negligence : fine up to CHF 250’000 • Financial Services Page 16

3. New supervision system Regulatory Intensity of requirements supervision B ank Prudential supervision Securities firm / Fund management company Manager of collective assets Portfolio manager, Trustee conduct Code of Investment adviser, distributor, broker, intermediary Source: FDF Financial Services Page 17

3. New supervision system Competent supervisory authority (Art. 57 FinIA)  Portfolio managers are supervised by one (or several) Supervisory Organization(s) regulated by the FINMASA (art. 43a ss FINMASA)  The Supervisory Organization (SO) will be an autonomous and independent Swiss based organization under FINMA’s supervision  The model of the SO is based on the US semi-public Financial Industry Regulatory Authority (FINRA)  Market participants are expected to propose one or more SO, if not or if the SO is inadequate, supervision will be performed by FINMA Financial Services Page 18